Luxury Outperformance Continues across Europe Despite Current Headwinds, with New Growth Markets Emerging

Retail

According to the report, luxury retail sales in Europe reached €103bn in 2023, with the top three markets (UK, France and Italy) accounting for almost half of the total share (17%, 17% and 14% respectively). While a slowdown is expected in 2024, this is likely to be temporary, as the long-term fundamentals for this segment of the market are robust.

CBRE’s research shows that luxury streets are achieving rental growth that exceeds that of the mass market. The prime rent currently achieved on New Bond Street is approximately triple that seen in 2010, and on Sloane Street it is over double. This is compared to locations such as Oxford Street and Regent Street where prime rents have increased by 12% and 50% respectively. In Paris, Rue Saint-Honoré has seen rental growth of over 130% since 2010, while rents on Boulevard Haussmann are back to 2010 levels, having fallen during the pandemic due to long-term vacancies. In Milan, prime rents on luxury high streets have grown by more than 30% over the last four years relative to mass-market streets.

This rental growth, paired with lower outward yield movement, has made prime retail assets an appealing investment, both for traditional real estate investors and luxury brands themselves to secure their long-term positioning on prized streets.  

Hotels

For the hotel sector, having an offering at the top end of the market has become increasingly important given the imperative to maintain the guest relationship in all of their travel requirements, and the strong supply/demand dynamics in the luxury segment. The growth of travel and the freeing-up of capital from balance sheets has allowed the major hotel groups to grow at speed to fill in areas of ‘white space’ they have in their portfolios, by either curating and growing owned brands or acquiring in the space.  

The pricing power of luxury hotels is demonstrated through average daily rate (ADR) growth. According to CBRE, ADR growth for the wider hotel market between 2019-2023 was 27% in London, compared to 42% in luxury. This outperformance was mirrored in both Paris and Milan, with ADR growth for the wider hotel market at 37% and 37% respectively, compared to luxury ADR growth at 42% and 60% respectively.

The evolution of this part of the market has also resulted in the stratification of luxury, with CBRE’s findings identifying three distinct sub-segments; entry level, hallmark and true luxury, all of which have pockets of opportunity for those who do not yet occupy the relevant tiers.

Brand-group investment in the luxury segment has also widened, both in creating separate luxury divisions and in providing a more professional branded residence offering, something that was the preserve of a limited few until recently. Branded residences have advanced from a niche financial strategy for developers to a thriving part of the real estate market, with the research showing a 25-30% premium per sqm when compared with an equivalent non-branded unit in Paris and Milan, and a premium of between 30 and 100% in London.

Living

The global luxury residential market continues to experience significant growth, and while Asia-Pacific, North America and mainland Europe are traditionally the key markets for HNWIs, a shift is taking place.

Over the past seven years, the popularity of European cities, and southern European cities in particular, has increased, with Portugal, Spain, Italy and Greece the main beneficiaries of heightened interest from Asian HNWIs.

London remains the biggest market for high-end living, with around 230,000 millionaires residing in the city. CBRE’s research shows that the number of luxury transactions continuously increased between 2018-2022, peaking at 245 transactions that year. Activity at the ‘exceptional’ scale (those at €40,000+ per sqm) has surged, with the data showing a 17% increase in these transactions between 2021 and 2023.

London also remains the most expensive in Europe, with pricing circa €30,000 per sqm, significantly higher than Paris and Amsterdam. The average transaction price of luxury properties in London has increased by 20%, from €8.4m in 2018 to €10m in 2023.

*Luxury Real Estate 2024 Report explores the impact of the development of the luxury market on the real estate that underpins retail, hotels, and living across London, Paris, Milan and Amsterdam.